The failure of IndyMac Bank has caused many bank depositors to ask questions about FDIC – the Federal Deposit Insurance Corporation. According to FDIC 10,000 IndyMac customers could lose as much as $500 million in uninsured deposits. FDIC will pay claims between $4 billion and $8 billion to insured depositors. FDIC representatives predict that there will be more bank failures, but “it will be within range of what we can handle.”

What will the FDIC pay?

All types of deposits are covered – checking, savings, money market deposit accounts, and certificates of deposit. The amount covered is the account balance plus accrued interest up to the date of the bank’s closing and up to the insured limit. FDIC does not cover stocks, bonds, mutual funds, life insurance or annuities.

The basic FDIC insurance amount is $100,000 per owner per insured bank. Accounts maintained in different categories of ownership may be separately insured up to $100,000 so that it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured.

There are 8 ownership categories that may be separately insured at the same bank.  The following 8 categories summarize the information available in the FDIC’s publication, Your Insured Deposits.:

1. Single Accounts. All single accounts owned by the same person at the same insured bank are added together, and the total is insured up to $100,000.

2. Certain Retirement Accounts. This category qualifies for $250,000 in insurance. It includes traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRA’s, Section 457 deferred compensation plan accounts, self-directed 401(k) plans, and self-directed defined contribution qualified plans, and self-directed Keogh plan accounts.

3. Joint Accounts. For joint accounts owned by people where each co-owner has equal rights to withdraw funds from the account, each co-owner’s share of every account that is jointly held at the same insured bank is added together with the co-owner’s other shares, and the total is insured up to $100,000. For example, a husband and wife could have $200,000 in a joint account and the deposit would be fully insured. Using different social security numbers or reordering the order of names on joint accounts has no effect on how much insurance is available.

4. Revocable Trust Accounts. An “informal” revocable trust account is a pay-on-death (POD) account, an “in trust for” (ITF) account, or a “Totten trust.” “Formal” revocable trusts are created by a trust document as part of an estate plan. All deposits that an owner has in both informal and formal revocable trusts are added together, and the insurance limit is applied to the total. When two insured banks merge, the deposits from the assumed bank are insured separately for 6 months. This period gives the depositor a chance to move the account if necessary.

The owner of a POD (or other “informal” trust) account is insured up to $100,000 for each beneficiary if the account is properly titled, the beneficiaries are identified by name on the deposit account records of the bank, and the beneficiary is a spouse, child, grandchild, parent or sibling. Adopted and step children, grandchildren, parents and siblings also qualify. Note that the owner or grantor does not count for this insurance.

5. Irrevocable Trust Accounts. If the bank account records disclose the trust relationship, the beneficiaries are identifiable from the bank’s records, and the amount of each beneficiary’s interest is not contingent, then the interest of a beneficiary of an irrevocable trust established by the same grantor and held at the same bank are added together and insured up to $100,000. For irrevocable trusts, beneficiaries do not have to be related to the grantor. But since these trusts often contain conditions or give trustees discretion to make distributions, coverage for these accounts is often limited to just $100,000.

6. Employee Benefit Plan Accounts. This insurance “passes through” the plan administrator to each participant’s share.

7. Corporation/Partnership/Unincorporated Association Accounts. Deposits owned by one of these entities are insured separately up to $100,000 and are insured separately from the personal accounts of the entity stockholders, partners or members. Accounts held in sole proprietorship accounts or DBA (doing business as) accounts are not included in this category but are added to the owners other single accounts.

8. Government Accounts. These are deposits of the United states, any state, county, municipality or political subdivision, or an Indian tribe. Each official custodian of time and savings deposits of a public unit is insured up to $100,000. Demand deposits are separately insured up to another $100,000. Pubic deposits maintained in out-of-state banks are limited to a maximum of $100,000 in coverage per official custodian.

Any recovery of uninsured amounts will depend on the sale of the banks assets and may take some time. Not all uninsured amounts are paid.

Deposits with each FDIC-insured bank are insured separately from any deposits at another insured bank. You can have $100,000 in as many banks as you wish!